Virginia Tax on International Export Sales Unconstitutional

The Virginia Supreme Court has held that the imposition of a Business, Professional, and Occupational License (BPOL) tax is unconstitutional as it applies to a duty-free retailer’s international export sales.

The retailer sells duty-free merchandise at Dulles Airport in Loudoun County, where it operates several stores. For domestic travelers, it charges sales tax and the purchaser immediately takes the item. When the sale involves a bonded imported item, the domestic passenger pays an import duty.

International travelers, on the other hand, must present a passport and boarding pass to the cashier in the shop. The cashier swipes the boarding pass on the register to record the information that is on the boarding pass. The retailer does not charge sales tax on international export sales and does not collect any import duty. Instead of receiving the item immediately, the traveler is given a receipt or ticket. Then a runner delivers the item to the buyer at the jetway before boarding, and the traveler hands the ticket to the runner. If the traveler does not collect the item, the retailer voids the sale and returns the merchandise to the store. International sales represent over ninety percent of the retailer’s sales.

The retailer claimed that applying the BPOL tax on the gross receipts of its international sales violated the Import-Export Clause of the U.S. Constitution.

The Court ruled that the BPOL tax is indistinguishable from the prohibited gross receipts tax in Richfield Oil Corp. v. SBE , 329 U.S. 69 (1946). Therefore, the BPOL tax as applied to the retailer’s export goods in transit constitutes an impermissible duty on an export in violation of the Import-Export Clause of the U.S. Constitution.

Dulles Duty Free, LLC v. County of Loudoun, Supreme Court of Virginia, No. 160939, August 24, 2017 , 206-379

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